The Fed's new headache: An AI boom that turns to bust

The stakes for the central bank are high, as Chair Kevin Warsh aims to cool inflation without wrecking the job market or causing financial turmoil.

By Victoria Guida 10/28/2026 5:00 AM EDT|Updated: 10/28/2026 10:26 AM EDT

Federal Reserve Chair Kevin Warsh says artificial intelligence will ultimately provide a “huge benefit” to the economy. But a cooling off of investment in the skyrocketing technology might actually help him right now.

The rapid construction of AI data centers across the nation is stoking inflation by juicing financial markets and creating shortages in electricity and construction. Yet it’s also a massive engine for the economy, fueling spending by consumers enriched through rising stock prices and by businesses, which are pouring money into tech-related investments.

That creates a dilemma for Fed policymakers: Raise interest rates too sharply to fight inflation and risk damaging a key driver of the economy.…